Nisbet v R
[2011] NZCA 285
•21 June 2011
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| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA96/2011 [2011] NZCA 285 |
| BETWEEN CRAIG GRANT SCOTT NISBET |
| AND THE QUEEN |
| Hearing: 30 March 2011 |
| Court: Glazebrook, Chambers and Lang JJ |
| Counsel: J C Gwilliam and S J Irons for Appellant |
| Judgment: 21 June 2011 at 4 pm |
JUDGMENT OF THE COURT
AThe appeal against conviction is dismissed.
B The appeal against sentence is allowed and the sentence of three years six months’ imprisonment is quashed. A sentence of three years’ imprisonment is imposed in its place.
REASONS OF THE COURT
(Given by Lang J)
Table of Contents
Para No
Introduction [1]
The Crown case [2]
The charge [7]
The appeal against conviction [11]
Did the Judge err in the manner in which he discharged his obligation
under s 220(4)? [12]
How did the circumstances give rise to a requirement obliging
Mr Nisbet to deal with the GST refund in accordance with
Mr Walbran’s requirements?[27]
This case [34]
Our assessment[38]
Did the Judge misdirect the jury in relation to the meaning of
“requirement” for the purposes of s 220(1)(b)? [54]
Was the jury’s conclusion that Mr Nisbet had control of Whariki’s GST
refund unreasonable having regard to the evidence? [62]
The appeal against sentence [68]
Result [81]
Introduction
Mr Nisbet was found guilty by a jury in the District Court at Wellington on a charge of theft by a person in a special relationship. On 17 February 2011 Judge Harrop sentenced him to three and a half years’ imprisonment.[1] He now appeals against both conviction and sentence.
The Crown case
[1] R v Nisbet DC Wellington CRI-2009-091-3751, 17 February 2011.
The charge against Mr Nisbet arose after he entered into a business relationship with Mr Warwick Walbran. The two men formed a company called Whariki Ltd (Whariki) to develop a substantial area of land at Sponge Bay, near Gisborne. They intended to convert the land into residential lots.
The land at Sponge Bay was owned by a company called Tuamotu Ltd (Tuamotu). Tuamotu had earlier agreed to sell the land to Falmouth Properties Ltd (Falmouth), a company wholly owned by Mr Nisbet. Falmouth agreed to on-sell the land to Whariki immediately after acquiring it from Tuamotu.
Mr Walbran invested approximately $560,000 in the venture. In order to formalise their business relationship, Mr Walbran and Mr Nisbet entered into a written shareholders agreement governing the manner in which Whariki was to operate. Mr Walbran did not, however, play any part in the day to day management of Whariki’s affairs. He left that entirely to Mr Nisbet.
In addition to the capital that Mr Walbran provided, Whariki required significant external funding in order to be able to complete the purchase of the land. It obtained that funding from two financiers, one of whom was Blackbird Finance Ltd (Blackbird). Blackbird agreed to advance funds to Whariki on the basis that Whariki would repay the sum of $225,000 within 90 days of the date of the advance. It was common ground at the trial that both Mr Nisbet and Mr Walbran anticipated that Whariki would comply with this requirement by using the GST refund to which it would be entitled after purchasing the land from Falmouth.
Falmouth had received the GST refund to which it became entitled when it acquired the land from Tuamotu. It then incurred a significant GST liability when it on-sold the land to Whariki. In order to meet this liability, Mr Nisbet told the accountants who acted for both Falmouth and Whariki to authorise the Inland Revenue Department to apply Whariki’s GST refund to offset Falmouth’s GST liability. This led to Mr Nisbet being charged with theft under s 220(1)(b) of the Crimes Act 1961.
The charge
Section 220(1)(b) relevantly provides:
220 Theft by person in special relationship
(1)This section applies to any person who has received or is in possession of, or has control over, any property on terms or in circumstances that the person knows require the person—
…
(b)to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person.
(2)Every one to whom subsection (1) applies commits theft who intentionally fails to account to the other person as so required or intentionally deals with the property, or any proceeds of the property, otherwise than in accordance with those requirements.
….
(4)For the purposes of subsection (1), it is a question of law whether the circumstances required any person to account or to act in accordance with any requirements.
Section 220, which was enacted by the Crimes Amendment Act 2003, replaced the original s 222 of the Crimes Act 1961, which had created the offence of theft by failing to account. Section 220 also replaced the old s 223 (theft by a person holding a power of attorney) and the old s 224 (theft by misappropriating proceeds held under directions).
The Crown alleged that Mr Nisbet assumed control over the GST refund in circumstances where he knew that it was subject to a requirement imposed by Mr Walbran. The requirement was to use the GST refund to partly repay the debt owing to Blackbird. The Crown contended that, in authorising the Inland Revenue Department to offset Whariki’s GST refund against Falmouth’s GST liability, Mr Nisbet intentionally dealt with the refund otherwise than in accordance with that requirement.
Mr Nisbet acknowledged that both he and Mr Walbran anticipated that the GST refund would be used to reduce the Blackbird loan. His counsel accepted that failure to use the loan for that purpose might expose Mr Nisbet to civil liability to Mr Walbran for any losses that Mr Walbran suffered as a result of Mr Nisbet’s actions. He contended, however, that it did not amount to the breach of a requirement of the type necessary to produce criminal liability under s 220(1)(b).
The appeal against conviction
Counsel for Mr Nisbet advanced the appeal against conviction on the following grounds:
(a)the Judge erred in the manner in which he discharged his obligation under s 220(4) to determine whether the circumstances obliged Mr Nisbet to act in accordance with a requirement by Mr Walbran that the GST refund was to be applied in reduction of the Blackbird loan;
(b)the Judge misdirected the jury in relation to the meaning of “requirement” in s 220(1)(b); and
(c)the jury’s conclusion that Mr Nisbet had control of the GST refund was unreasonable having regard to the evidence.
During the hearing, counsel for Mr Nisbet abandoned a submission that, in order to prove the charge, the Crown needed to establish that Mr Nisbet had acted dishonestly and without claim of right. He made that concession in the light of comments made in R v Sizemore, where this Court said that dishonesty and an absence of claim of right were not elements of a charge laid under s 220.[2]
Did the Judge err in the manner in which he discharged his obligation under s 220(4)?
[2] R v Sizemore CA290/05, 5 December 2005 at [26] and [27].
Liability cannot arise under s 220 unless the circumstances required the accused to deal with property in accordance with the requirements of another person. Section 220(4) provides that it is a question of law whether the circumstances give rise to that obligation on the part of the accused. Questions of law are the province of the trial Judge and not the jury.
Section 220(4) requires the trial judge to identify specific factual circumstances that, if proved, give rise to a legal requirement obliging the accused to deal with property in a particular way. The identification of those circumstances is properly a matter for the judge, because it may require the interpretation of contractual documents or a determination as to whether legal obligations flow from the particular relationship or conduct of the parties.
Where there is no dispute about the facts allegedly giving rise to the requirement, the judge will be able to determine as a matter of law whether or not the requirement exists. All the jury will have to determine are the remaining questions of fact.
Where there is a dispute about the facts allegedly giving rise to the obligation, the judge will be required to premise his or her determination on the basis that the Crown will be able to prove those facts. In that event the judge’s determination of the legal position will be conditional upon the jury’s factual findings. The judge will then need to provide the jury with directions (whether by question trail or otherwise) regarding the factual matters the Crown must prove in order to establish guilt.
The question of law must obviously be determined in light of all the evidence. Where the judge makes the determination at the conclusion of the Crown case, it will be necessary for him or her to revisit the issue in the event that the defence elects to call evidence.
In the present case the Judge heard argument on the question he was required to determine under s 220(4) at the conclusion of the Crown case, and delivered a reasoned ruling in relation to it before requiring the defence to make its election.[3] The defence then elected not to call evidence, so it was not necessary for the Judge to review his ruling before counsel delivered their closing addresses.
[3] R v Nisbet DC Wellington CRI-2009-091-3751, 1 December 2010 (Ruling No 2).
The Judge began his ruling by stating:
[6] … reference to the specifics of the link between the payment to Blackbird Finance and the GST refund and the circumstances surrounding that is beyond the true scope of the question of law that I have to determine, which is focussed on the general relationship between the parties rather than on particular obligations relating to an item of property. The former is a matter with which the charge itself deals and with which the jury has to grapple as a finding of fact.
[7] It seems to me, therefore, that the proper approach is that I have got to decide whether the relationship between Mr Nisbet and Mr Walbran, having regard to all its aspects, was one which was capable of giving rise to the kind of obligation, the breach of which is the potential subject of a charge under s 220.
[8] To put it another way, s 220 is labelled “Theft by a person in a special relationship,” and what I need to do is say, “Well, was there a special relationship here?”
The Judge concluded by saying:
[24] The circumstances of the relationship, as confirmed by but not dependent on the shareholders agreement, satisfy me to the necessary standard … that the circumstances of that relationship did require Mr Nisbet to act in accordance with any requirements on financial matters that Mr Walbran may have had or any understanding that there may have been between the two of them or within the company as an entity.
These passages show that the Judge focused upon the general nature of the relationship between Mr Nisbet and Mr Walbran. He expressly elected not to determine whether Mr Nisbet was subject to a specific obligation to deal with the GST refund in a particular way. He saw that as being a factual issue for the jury. Although the Judge referred to the shareholders agreement, he did not determine that it gave rise to the type of requirement that would come within s 220. He did not identify any specific circumstances that, if proved, would amount in law, to a “requirement” in terms of s 220(4). Rather, he found that the circumstances of the relationship were such that it required Mr Nisbet to act in accordance with any requirements or understandings on financial matters that Mr Walbran may have had.
The Judge explained his ruling to the jury as follows:[4]
Well, looking now at the charge. The indictment contains, as you know, one count of theft by a person in a special relationship. It was a question of law that I had to decide, and I did this yesterday when you were out of the room, whether the relationship between Mr Walbran and Mr Nisbet was of the necessary qualifying kind. Was it a special relationship in law? And I decided that yes it was, but I just emphasise that that is merely a threshold requirement. All that really means is that this is the kind of relationship which might give rise to this kind of charge. It does not say anything about whether the charge is a proper charge or whether it is proved. That is entirely for you.
[4] R v Nisbet DC Wellington CRI-2009-091-3751, 2 December 2010 [Summing-up] at [13].
We consider that the Judge was required to do more than consider the relationship between the parties. He was required to decide whether, if the jury accepted the factual circumstances upon which the Crown relied, those circumstances gave rise to a specific and identified obligation on Mr Nisbet’s part to deal with the GST refund in accordance with Mr Walbran’s requirements.
We do not consider, however, that our conclusion regarding the approach that the Judge took is determinative of the appeal. For the reasons that follow, we are satisfied that the evidence established beyond reasonable doubt that Mr Nisbet was subject to an obligation under s 220 to act in accordance with Mr Walbran’s requirements regarding the manner in which the GST refund was to be used. We are also satisfied that the jury’s conclusions in relation to the factual questions posed for them by the Judge mean that they accepted that the Crown had proved the other essential elements of the charge.
How did the circumstances give rise to a requirement obliging Mr Nisbet to deal with the GST refund in accordance with Mr Walbran’s requirements?
In order to determine this issue, it is first necessary to determine when circumstances will give rise to a requirement for the purposes of s 220.
Section 220 replaced s 222 in 2003. The issue of what will constitute circumstances requiring a person to act in accordance with the requirements of another person under s 220(4) has not been the subject of any authority to date. However, the authors of Garrow and Turkington’s Criminal Law in New Zealand note that there is nothing in the Report of the Law and Order Select Committee on the Crimes Amendment Bill or the 1991 report of the Crimes Consultative Committee to suggest that the replacement of s 222 with s 220 was intended to change the substance of the law.[5] The explanatory note to the Crimes Amendment Bill says that s 220 is a “simplified version” of s 222.[6] Accordingly, cases under the former s 222 are still relevant to determining what falls within s 220.
[5]Gary L Turkington Garrow and Turkington’s Criminal Law in New Zealand (online looseleaf ed, LexisNexis) at [CRI220.3].
[6] Crimes Amendment Bill 1999 (322–1) at v.
Case law on the former s 222 made it clear that the section applied if a person agreed to take money on terms requiring it to be paid to a third person and then failed to do so. The terms could be merely contractual. Therefore, an arrangement whereby a canvasser for drapery orders collected money under an agreement that the canvasser was to pay over all money received at least once a week fell within the section.[7] Similarly, an insurance broker who received deposits for life insurance under a contract to pay them over to the insurance company fell within the section.[8] An auctioneer who received money from a sale on behalf of his principal and retained some of it for himself could likewise be convicted.[9]
[7] R v Kirk (1901) 20 NZLR 463 (CA).
[8] R v Martini [1941] NZLR 361 (CA).
[9] Shields v Jefferies [1953] NZLR 666 (SC).
However, this Court has held that in order for the offence to be established the obligation must be more than a mere debt.[10] In R v Scale the Court held:[11]
It has been accepted by this court that in order to establish that an accused person has received money on terms requiring him “to account for or pay it” to some other person the Crown must establish that the circumstances impose on the person by whom the money is received an obligation which is something more than a mere debt: Mead v The Queen [1972] NZLR 255, 261. The difficulty is to pin down the additional element required to bring a case within s 222. This difficulty is discussed in Adams (op cit) para 1799-1805. The learned author expresses the view (para 1802) that this additional element can only be established in circumstances where equity would find either an express or constructive trust. This view was accepted by Speight J in Police v Leaming[1975] 1 NZLR 471. Whether or not the line should be drawn in the foregoing way (and we prefer to leave that question open for further consideration in this court) we agree that the essence of an offence under s 222 lies in the existence of a “fiduciary element” or the “earmarking” of the property in the hands of the accused. No authority has been cited to us which satisfies us that the common law obligation of a person to whom money has been paid by mistake to repay that money carries with it any such element as that to which we have just referred.
[10] Mead v R [1972] NZLR 255 at 261.
[11] R v Scale [1977] 1 NZLR 178 (CA) at 181–182.
In R v Prestney, Blanchard J held:[12]
Guilt under the section depends in relation to this element of the offence not so much upon any question of whether the accused acquires title to the money but upon the nature of the obligation which the accused has expressly or implicitly accepted in relation to its use or application (see the distinction drawn by Sir Francis Adams to which reference is made in the current edition of Adams on Criminal Law at CA222.13).
[12] R v Prestney [2003] 1 NZLR 21 (CA) at [23].
The distinction drawn by Adams was:[13]
... between property to which the recipient was both legally and beneficially entitled, and which he or she might therefore dispose of as his or her own, subject only to such contractual liability as might arise; and on the other hand, property of which he or she might be the legal owner but of which he or she was not the full beneficial owner and of which he or she might only dispose in accordance with the terms imposed. In the latter situation the recipient was forbidden to use the property other than for a defined purpose, and therefore it was not beneficially his or her property.
[13] Bruce Robertson (ed) Adams on Criminal Law (online looseleaf ed, Brookers) at [CA220.03].
This Court has left open the issue of whether a requirement to deal with property in a particular way can arise simply from the relationship between the parties as distinct from the terms of a contract or a trust. In R v Norris the Court held:[14]
Whether the requirement or obligation is one which must arise from the contractual relationship of the parties or can otherwise be imposed by law is said to be debatable (R v Scale [1977] 1 NZLR 178), and need not be determined for present purposes. The Crown case, as put by the Judge to the jury, was that there had to be established in each instance an “undertaking” common to both parties.
[14] R v Norris (1993) 11 CRNZ 56 (CA) at 59.
In R v Prior, the Court rejected a submission that because directors are in a fiduciary relationship with the company this necessarily means that they are required to account for all money they receive from the company.[15] The Court held:[16]
Simply to state that a director is in a fiduciary relationship with the company says nothing of his or her duties and obligations. … Whether, because of his or her relationship with the company, or otherwise, there is a duty to account for moneys received will depend on the circumstances.
[15] R v Prior [2000] 1 NZLR 526 (CA).
[16] At [16].
We conclude that a requirement will be established under s 220(4) if the facts relied upon by the Crown establish a contractual obligation on the part of the accused to deal with property in a particular way. Whether or not it will arise from a fiduciary relationship will depend upon the circumstances. We leave open, because it does not arise in the present case, the possibility that the requirement might otherwise be imposed by law.
This case
The Crown relied upon two factors which, combined, meant that Mr Nisbet received the GST refund subject to a requirement that he use it to reduce the Blackbird loan. First, it relied upon the contractual obligations that the shareholders agreement imposed on both Mr Walbran and Mr Nisbet. Second, it relied on oral discussions that were held between Mr Nisbet and Mr Walbran.
The Crown relied upon clauses 6.6, 7.1 and 7.3 of the shareholders’ agreement, which provided as follows:
6.6The parties will cooperate and use their best endeavours to ensure that all arrangements made in respect of the project finance are given effect in accordance with all agreements and understandings relating to it, and with the collective intentions of the parties that repayment of project finance are made at times and in the manner that accord with all such arrangements, agreements and understandings and will properly facilitate the retirement, redemption and satisfaction of all relevant obligations as appropriate.
7.1The parties will be just and faithful to each other and at all times shall give to each other full information and truthful explanations of all matters relating to Whariki and shall afford every assistance in their power to allow Whariki to carry on its business to its advantage.
...
7.3Major decisions shall require unanimous resolution of Craig, Warwick, the Nizzy Trust and Warwick’s Business Trust. A major decision includes decisions relating to:
a) The terms of any finance;
b) The nature and scope of any subdivision of the property;
c)Any event that materially increases the risk to the Project or causes delay.
In summary, clause 6.6 imposed an express obligation on both parties to use their best endeavours to ensure that all arrangements made in respect of project finance were given effect to in accordance with all agreements and understandings that Mr Nisbet and Mr Walbran reached in relation to it. It also required them to use their best endeavours to ensure that such arrangements were given effect in accordance with their collective intention, and that project finance would be repaid in accordance with those arrangements, agreements and understandings. Clause 7.1 imposed duties of faithfulness on the shareholders, and required them to be frank and truthful in their dealings with each other in relation to the company’s affairs. Clause 7.3 required major decisions to be unanimous.
The Crown also relied upon Mr Walbran’s evidence-in-chief, in which he referred to his understanding that the GST refund was to be used to reduce the Blackbird loan. Under cross-examination, he amplified his earlier evidence by referring to oral discussions between himself and Mr Nisbet in relation to this issue:
Q.And then in the next paragraph, you say, “Craig told me that Whariki was owed a $225,000 GST return, and that this would be the money the company would be using to repay Blackbird Finance”?
A.Yep.
Q.So are you saying it was Craig who told you that, or someone else?
A.If you’re asking me when I was first told of it, ah, it could have been either Craig or Bill Slater. If you’re asking me whether or not Craig ever told me that, Craig definitely told me that. We had several discussions about that.
Q.Do you remember when?
A.Ah, most of them after the loan was drawn down, and when we were, um, saying, well, where’s that GST return and, you know, Blackbird want their money.
Our assessment
We do not consider that, on its own, clause 6.6 of the shareholders agreement was sufficient to create an obligation on Mr Nisbet’s part to pay the GST refund to Blackbird. The clause does not mention the Blackbird loan or the GST refund. It only refers to project finance generally.
We do not consider, either, that clauses 7.1 and 7.3 gave rise to an obligation on Mr Nisbet’s part to use the GST refund to reduce the Blackbird loan. They dealt with matters that are quite removed from the specific issue of the manner in which the GST refund was to be used.
Similarly, standing alone, any understanding that Mr Walbran and Mr Nisbet may have reached through their oral discussions would not give rise to a requirement under s 220. As discussed above,[17] the cases relating to the former s 222 suggest that the requirement must arise as a contractual or fiduciary obligation. Mr Nisbet accepted that there was an “understanding” that the GST refund would be used to reduce the Blackbird loan, but the evidence fell short of establishing that the oral discussions alone produced a binding contractual or fiduciary obligation on Mr Nisbet’s part to use the refund for that purpose. In particular, the Crown could not prove that Mr Walbran provided consideration for any promise by Mr Nisbet to use the GST refund to reduce the Blackbird loan. At the time the oral discussions were held Mr Nisbet was already managing Whariki’s affairs, and he already had the ability to control the refund. He therefore obtained nothing new as a result of his promise.
[17] At [25]–[30].
The position is different, however, when the oral discussions and Clause 6.6 of the shareholders agreement are viewed in combination. Clause 6.6 imposed a contractual obligation upon both men to use their best endeavours to give effect to all agreements and understandings that they reached regarding project finance. The GST refund and the Blackbird loan obviously formed part of the project finance. As a result, Mr Nisbet was subject to a contractual obligation under Clause 6.6 to give effect to all agreements and understandings that he and Mr Walbran reached in relation to the GST refund and the Blackbird loan. It would apply, therefore, to any agreement or understanding between Mr Nisbet and Mr Walbran that the GST refund would be used to reduce the Blackbird loan.
Ordinarily, it would be for the jury to determine the factual issue of whether or not the two men had reached such an agreement or understanding. In the present case, however, there was no dispute that both men always understood from their oral discussions that the GST refund would be used to reduce the Blackbird loan.
Blackbird’s loan offer had contained the express condition requiring Whariki to reduce the loan by $225,000 within 90 days of drawdown. This figure coincided with the GST refund that Whariki was to receive when it purchased the property. Mr Walbran said that when he saw this requirement in the loan offer he asked how it was to be met, and was told by either Mr Nisbet or the company’s accountant (in the presence of Mr Nisbet) that the GST refund would be used. Although Mr Nisbet’s counsel cross-examined Mr Walbran extensively regarding a wide range of issues, he did not at any point suggest to Mr Walbran that he was mistaken regarding his understanding as to how the GST refund was to be used.
Mr Walbran also said that he became concerned about the Blackbird loan when the GST refund failed to materialise. When he began asking Mr Nisbet about what was happening, Mr Nisbet told him that the Inland Revenue Department was responsible for the delay. It was not until Mr Walbran subsequently spoke to Whariki’s accountants that he discovered that Mr Nisbet had authorised them to tell the Inland Revenue Department that Whariki’s refund could be applied against Falmouth’s GST liability. When confronted about this, Mr Nisbet signed an acknowledgment of debt in favour of Whariki in which he acknowledged his liability for the amount of the GST refund. He also subsequently assigned his shares in Whariki to Mr Walbran. He did not endeavour at any stage to argue that Mr Walbran’s understanding about the use to which the GST refund ought to have been put was incorrect.
Mr Nisbet did not give evidence at trial, and nothing in his counsel’s closing address suggested that there was any dispute about Mr Walbran’s evidence on these points. Counsel effectively accepted the existence of the understanding in the following passage of his closing address:
So you have a situation here, I would suggest to you members of the jury, that sure these funds didn’t end up where they were supposed to. There’s no doubt that there was an understanding of all parties here that this two hundred and twenty five thousand reduction in the loan to Blackbird, the way that was going to be financed was because of a GST refund, but does that put it in the category where Mr Nisbet was under an obligation to ensure that that GST refund went straight to Blackbird?
The written submissions that Mr Nisbet’s counsel filed in this Court contained a passage to similar effect:
At the time that Mr Walbran became involved in the project the terms of finance, particularly with Blackbird Finance Ltd had effectively been settled and Mr Walbran was aware that the requirement to repay $225,000.00 within 90 days of the advance would be funded by way of the GST refund that was expected to come back on the purchase of the property (in this respect the purchase price was $1.8 million plus GST).
We therefore conclude that both the Crown and Mr Nisbet proceeded throughout on the basis that the agreement or understanding existed. There was therefore no need for the Judge to formally leave that factual issue as a question for the jury to determine.
The Judge summed up using a question trail as a back bone. The issue we have been discussing was, in fact, split into two questions in that question trail, namely questions 2 and 4. For a better understanding of the discussion that follows, we set out the question trail in full:
R v CRAIG GRANT SCOTT NISBET
CHARGED WITH THEFT BY A PERSON IN A SPECIAL RELATIONSHIP
QUESTION TRAIL FOR THE JURY
Note: On all issues, the burden of proof beyond reasonable doubt lies on the Crown
1.Are you sure that Mr Nisbet had control over the $225,000 GST refund to which Whariki Limited was entitled?
If the answer is NO, find Mr Nisbet NOT GUILTY.
If the answer is YES, move to the next question.2.Are you sure that Mr Nisbet’s control of the GST refund was on terms or in circumstances that required him to ensure that it was paid by Whariki Limited to Blackbird Finance Limited within 90 days of the drawdown of the loan from that company?
If the answer is NO, find Mr Nisbet NOT GUILTY.
If the answer is YES, move to the next question.3.Are you sure that Mr Nisbet knew that his control of the GST refund was on those terms or in those circumstances?
If the answer is NO, find Mr Nisbet NOT GUILTY.
If the answer is YES, move to the next question.4.Are you sure that Mr Nisbet’s obligation to deal with the $225,000 Whariki GST refund was in accordance with the requirements of Mr Walbran and/or Whariki Limited?
If the answer is NO, find Mr Nisbet NOT GUILTY.
If the answer is YES, move to the next question.5.Are you sure that between 21 August 2007 and 18 September 2007, Mr Nisbet dealt with the GST refund otherwise than by ensuring that Whariki Limited could pay Blackbird Finance Limited within the 90-day period?
If the answer is NO, find Mr Nisbet NOT GUILTY.
If the answer is YES, move to the next question.6.Are you sure that, being aware of his obligation to ensure that the GST refund remained available to be used to pay Blackbird Finance Limited, Mr Nisbet deliberately dealt with it so as to cause it to be unavailable for that purpose?
If the answer is NO, find Mr Nisbet NOT GUILTY.
If the answer is YES, find Mr Nisbet GUILTY.Our conclusion in relation to the s 220(4) issue means that the Judge was not required to include questions 2 and 4 in the question trail. They related directly to the issue of whether or not Mr Nisbet was subject to the necessary requirement in terms of s 220. The Judge ought to have determined that issue in favour of the Crown as a question of law under s 220(4).
The only remaining factual issues that the jury was required to consider were whether Mr Nisbet had control of the GST refund and whether he intentionally applied it otherwise than in accordance with Mr Walbran’s requirements. Those issues were adequately before the jury in questions 1, 3, 5 and 6.
No harm arose from the Judge’s error in approach to s 220(4). The error did not in any way prejudice Mr Nisbet or lead to a miscarriage. That is because there was no dispute that Mr Nisbet was a party to the shareholders’ agreement and acknowledged he had reached an understanding with Mr Walbran that he would apply the GST refund in reduction of the Blackbird loan. The only effect of erroneously leaving that determination to the jury in the circumstances was that the Judge gave Mr Nisbet a chance of an acquittal on a basis to which he was not entitled.
We know from the guilty verdict that the jury must have answered questions 2 and 4 “yes”. Given the oral explanation which accompanied the Judge’s directions on those questions, we can therefore be satisfied that the jury too were sure that “Mr Nisbet clearly understood that the money was earmarked for paying Blackbird Finance” and that “there was an understanding to which Mr Nisbet ... was party along with Mr Walbran”.[18]
[18] Summing-up at [35]–[36].
It follows that, applying the approach that the Judge ought to have taken, the verdict that the jury reached was inevitable. The first ground of appeal fails as a result.
Did the Judge misdirect the jury in relation to the meaning of “requirement” for the purposes of s 220(1)(b)?
This issue arises from the oral directions that the Judge gave the jury in relation to question 4 in the question trail.
When the Judge directed the jury in relation to question 4, he said:
[33] Now this is a little tricky and it is, are you sure that Mr Nisbet’s obligation to deal with this money was in accordance with the requirements of Mr Walbran and/or Whariki Limited? So that raises the question, and this is another matter of law on which I need to direct you, as to what the requirements of Mr Walbran and Whariki Limited means. If you think about the English language, the word “requirements” could mean two things. It could mean something that somebody stands up and says, “I require, I demand, I stipulate that you do this for me specifically with this money,” or whatever. Or it could just mean the requirements of a person are things that that person needs. A person needs a roof over their head, food, shelter, clothing, that sort of thing, those are the requirements of a person, they are not something that the person has stood up and shouted about or demanded from somebody, that is just something that we all know is the requirements of those ordinary human beings living in New Zealand, for example.
[34] Well, what I am going to direct you here is that the second meaning is the one that matters. If you are satisfied that the needs of Mr Walbran or the company obliged Mr Nisbet to deal with the GST refund in the way that has been discussed, that it would be available to pay Blackbird, then that satisfies the requirements aspect of this question. In other words, there does not need to be evidence of a specific direction by Mr Walbran or by the company to Mr Nisbet saying, “We direct you to deal with this GST refund in this particular way.” It is sufficient if you are satisfied that there was an understanding that Mr Nisbet was part of, that that was what was going to happen and that it was consistent with the needs and interests of the company and Mr Walbran that it be dealt with in that way.
We do not consider that the Judge’s reference to the concept of “needs and interests” in [34] was correct. It was based on a ruling that he gave as a matter of urgency shortly before he commenced his summing up, and after he had heard limited argument regarding the meaning of “the requirements of any other person” as that term is used in s 220(1)(b).[19]
[19] R v Nisbet DC Wellington CRI-2009-091-3751, 2 December 2010 (Ruling No 4).
The Judge found dictionary definitions of the word “requirement” to be unhelpful. He concluded, however, that the language used in the section supported the conclusion that the word “requirements” in the phrase “in accordance with the requirements of any other person” meant “in accordance with the needs or interests of the other person”. He did not consider that it meant a stipulation or direction given by that person.
Central to the Judge’s reasoning was the use of the plural in “requirements”, and the fact that s 224, the predecessor to s 220, used the word “direction” rather than requirement. The Judge concluded that these factors suggested that the current wording of the section extends beyond specific directions and stipulations.
We take a different view. We consider that the phrase means just what it says. Liability will arise if a person intentionally deals with property otherwise than in accordance with requirements that he or she knows have been imposed in relation to that property by another person. To interpret the word “requirements” as meaning “needs or interests” adds an unnecessary gloss to the words of the statute.
We do not place any particular weight upon the fact that Parliament has used the plural of ‘requirement” in this context. A requirement may have several components. It may, for example, require a person to deal with property in several ways. Each would be a separate requirement.
In reality, the only “need” or “interest” that Mr Walbran had in respect of the GST refund was that it be applied in reduction of the Blackbird loan. For that reason we do not see that the Judge’s direction in relation to this issue could have had any material effect on the outcome. Although we again take a different approach from that taken by the Judge, the second ground does not call into question the validity of the jury’s verdict. As we have said, question 4 should not even have been left as an issue for the jury, as, given the concessions Mr Nisbet had made, there was in truth no factual issue remaining to be resolved. As a matter of law, the circumstances did require Mr Nisbet to apply the GST refund in reduction of the Blackbird loan, that being an understanding reached between him and Mr Walbran in the context of their shareholders’ agreement.
Was the jury’s conclusion that Mr Nisbet had control of Whariki’s GST refund unreasonable having regard to the evidence?
Counsel for the appellant based his submissions relating to this ground of appeal on the proposition that there was insufficient evidence to enable the jury to conclude that Mr Nisbet had control of the GST refund. In order to succeed on appeal, however, an appellant must establish that the jury’s verdict was unreasonable having regard to the evidence. The principles that apply to appeals brought under this head are to be found in R v Munro[20] and Owen v R.[21] Those cases establish that the weight to be given to individual pieces of evidence is essentially a jury function, and that the body charged with finding the facts is the jury. Appellate courts should not lightly interfere in this area.[22]
[20] R v Munro [2007] NZCA 510, [2008] 2 NZLR 87.
[21] Owen v R [2007] NZSC 102, [2008] 2 NZLR 37.
[22] Owen at [13].
The evidence in the present case disclosed that a firm of accountants acting for both Falmouth and Whariki received a cheque for Falmouth’s GST refund on 13 August 2007. Mr Nisbet met with one of the accountants from that firm, Mr Ruffell, on 21 August 2007. During that meeting Mr Ruffell raised with Mr Nisbet the fact that Falmouth had no way of paying the GST liability it had incurred when it on-sold the Sponge Bay property to Whariki. Mr Ruffell then put various options to Mr Nisbet regarding Whariki’s GST refund. At some stage during or shortly after the discussion, Mr Nisbet authorised Mr Ruffell to advise the Inland Revenue Department that it could credit Whariki’s GST refund against Falmouth’s liability to pay GST.
Mr Ruffell said that after receiving these instructions from Mr Nisbet he sent a letter by facsimile to the Inland Revenue Department confirming that Whariki’s refund could be applied against Falmouth’s liability for GST arising out of the sale of the Sponge Bay property. He described the circumstances leading to that letter as follows:
Q. Well, let’s go back to tab 6 and this fax.
A. Yep.
Q. On whose directions did you send that fax?
A. Oh, Craig.
Q. So when did those directions come to you?
A.Look, the purpose of the meeting that we had with him was really to say, um, we’d prepared drafts, GST returns, we said Falmouth had made, Whariki to pay to the Inland Revenue, Whariki had this refund, um, how was Falmouth going to pay that GST, did we have the GST returns correct, that sort of thing, and really in looking at, that documentation underlined the returns, the sale and purchase agreement, we knew that, yes, there was a liability on Falmouth’s side and there would be GST refundable by Whariki, so we said, “How does Falmouth pay the GST?” and after a lot of discussion – and one of the options we would have put to Craig was, well, can we do an offset? And if we would do an offset how do we account for that in Whariki’s books and Falmouth’s books, that sort of discussion. And out of that, and I can’t tell you whether that agreement was reached at that meeting or later on. We had numerous phone calls between myself and Craig at the time, to-ing and fro-ing over documentation and emails and so forth.
Q.So as the accountants for Whariki, are you able to do anything in regards to money or IRD, things without consent of the parties?
A.Well, we were always looking to get the consent, that’s what we’re there for.
Q. Did you get consent from Craig Nisbet that day?
A. Absolutely, we wouldn’t have done it otherwise.
When counsel suggested that Mr Ruffell had sent the letter without the appropriate authority he responded:
A. No that’s just completely wrong. It’s simply –
Q. And how sure are you of that?
A.Look, absolutely. We just take our direction from the client. You can imagine it, you know, we, we would be talking to the client and saying, “What’s the nature of the transaction,” and they would explain it to us. We might talk to them about options about how to treat the transaction or the tax law affecting it. We would ask them for documentation and then we would say to them, for instance with this option, that they have to agree to it and at the end of the day we get them to sign the GST returns with that, that, that knowledge.
We consider that this evidence permitted the jury to conclude that Mr Ruffell acted in accordance with Mr Nisbet’s instructions when he authorised the Inland Revenue Department to apply Whariki’s GST refund in reduction of Falmouth’s GST liability. There was no evidence to the contrary. The jury’s conclusion in relation to this issue therefore cannot be described as unreasonable having regard to the evidence.
The argument for Mr Nisbet on this point really reduced to a submission that Mr Nisbet had few practical options available to him at the time that he met with Mr Ruffell. That may be so, but it does not alter the fact that he retained overall control of the manner in which Whariki’s GST refund was to be applied. This ground of appeal fails as a result.
The appeal against sentence
In fixing a starting point for the sentence to be imposed on Mr Nisbet the Judge had regard to several factors.
First, the offending arose out of a single transaction rather than a series of transactions. Second, he accepted that Mr Nisbet had not deliberately set up a sophisticated system to divert funds away from Whariki. Rather, he had taken advantage of an opportunity that presented itself at the meeting with his accountant on 21 August 2007.
Next, the Judge considered that the offending was aggravated by the fact that Mr Nisbet had lied on numerous occasions when Mr Walbran asked him why Whariki had not received the GST refund. Mr Nisbet’s response was that the IRD had delayed the release of the refund. He also told Mr Walbran that the IRD did not like property developers. He made those statements in circumstances where he knew that he had already authorised the IRD to apply the refund towards Falmouth’s GST liability. The Judge therefore considered that Mr Nisbet knew that what he had done was wrong, and that he had deliberately acted contrary to the interests of both Mr Walbran and Whariki.
The Judge also observed that the effect of the offending had been devastating for Mr Walbran. He accepted that it was not possible to ascertain whether Whariki would have collapsed even if it had received the GST refund. Other factors, including delay in obtaining resource consent for the project and the global financial crisis, also contributed to Whariki’s problems. Nevertheless, the consequences for Mr Walbran had been devastating. He lost his entire investment in the company, and was subsequently bankrupted on the basis of guarantees that he had given. The Judge considered that Mr Nisbet was required to bear a considerable degree of responsibility for that outcome.
The Judge noted that in R v Davis[23] this Court held a starting point of four years’ imprisonment to be plainly within range in circumstances where the offender had pleaded guilty to three counts of theft as a servant and two counts of misappropriating property. That offending had occurred over a period of five years, and in circumstances where the offender had set up moderately sophisticated systems resulting in the theft of more than $290,000 from his employer’s business. He also noted that in R v Varjan[24] this Court upheld a starting point of three years’ imprisonment in circumstances where the offender had misappropriated approximately $546,000 through a series of transactions.
[23] R v Davis [2009] NZCA 26.
[24] R v Varjan CA97/03, 26 June 2003.
These factors led the Judge to adopt a starting point of three and a half years imprisonment.
He declined to increase the sentence notwithstanding the fact that Mr Nisbet had a previous conviction that was potentially relevant. This arose as a result of an incident in which Mr Nisbet had dishonestly disposed of property belonging to another person two years before the present offending. The Judge also declined to reduce the starting point based on Mr Nisbet’s otherwise good character and professed remorse. He therefore imposed an end sentence of three and a half years imprisonment.
The offending clearly involved a serious breach of Mr Nisbet’s obligations to Mr Walbran and Whariki. He knew that Whariki depended upon the GST refund to meet its contractual obligation to reduce the Blackbird loan. He made a deliberate decision to apply the refund to extinguish or reduce Falmouth’s liability to the Inland Revenue Department rather than to reduce Whariki’s liability to Blackbird. The Judge found that he had acted dishonestly in doing so.
Mr Nisbet’s actions must also have been at least partly responsible for the consequences for Mr Walbran that followed Whariki’s collapse. We therefore accept that issues of deterrence, denunciation and accountability played a significant role in the starting point to be adopted.
Like the Judge, we consider the offending in Davis to have been more serious, because it arose out of a reasonably sophisticated series of steps taken over a period of time to misappropriate funds. We also consider the offending in Varjan to have been more serious. A much larger sum was misappropriated, and this occurred as a result of several separate transactions. The losses suffered by the victims of the offending in that case were also considerably greater than the losses that Mr Walbran suffered. For those reasons we consider that the starting point in the present case needed to be lower than that adopted in Varjan. We consider that the starting point and end sentence in the present case should not have been greater than three years imprisonment.
A sentence of home detention was technically available to Mr Nisbet because his offending occurred prior to 1 October 2007. For that reason, the sentence to be imposed upon him was subject to the transitional provisions in the home detention legislation. The fact that the end sentence was one of more than two years’ duration did not, therefore, prevent the Judge from imposing a sentence of home detention.[25]
[25] R v Hill [2008] NZCA 41, [2008] 2 NZLR 381 (CA).
The Judge gave careful consideration to imposing a sentence of home detention. He ultimately decided against it on the basis that the offending was too serious to permit a sentence of home detention to be imposed. He also considered that, even now, Mr Nisbet does not truly appreciate the seriousness of his offending. He considered that a deterrent sentence should be imposed so that this fact could be brought home to Mr Nisbet.
Having presided over Mr Nisbet’s trial, the Judge was well placed to evaluate the seriousness and consequences of Mr Nisbet’s offending. The factors to which the Judge gave weight in reaching his decision were plainly relevant to the issue of whether or not a sentence of home detention was appropriate. His conclusion that it was not appropriate was clearly open to him having regard to those factors.
Result
The appeal against conviction is dismissed.
The appeal against sentence is allowed. The sentence of three years six months’ imprisonment is quashed. In its place we impose a sentence of three years’ imprisonment.
Solicitors:
John Gwilliam & Co Ltd, Upper Hutt for Appellant
Crown Law Office, Wellington for Respondent
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